USD/JPY Fundamental Forecast – July 27, 2016

The USD/JPY fell 98 points as the yen strengthen against the greenback ahead of the Federal Reserve meeting today and tomorrow. The dollar is down slightly against all of its major rivals ut is little changed overall. There has been no US economic data to drive trading today and very little global economic data at the start of the new trading week. However, a large number of important US reports are coming later this week.

New home sales and consumer confidence data are scheduled for Tuesday, while durable goods orders and pending home sales are slated for Wednesday. Weekly jobless claims and international trade are due out Thursday, while GDP and consumer sentiment are coming on Friday.

In addition to this upcoming data deluge, investors are awaiting Wednesday’s announcement from the Federal Reserve. The Fed is widely expected to leave interest rates unchanged as officials wait to see the fallout from Britain’s vote to leave the EU.

The central bank’s accompanying statement is still likely to be in focus, as investors attempt to gauge the outlook for the next rate hike. Meanwhile, the Bank of Japan’s two-day monetary policy meeting starts on July 28 and most economists expect the central bank to ease its policy.

The greenback briefly touched a high of Yen106.74 in Asian trade, suggesting strong appetite among Japanese importers and other corporate players for dip buying of the dollar for regular commercial trade settlement, but later pulled back.

J.P. Morgan, which expects a further cut in rates and increased asset purchases by the Bank of Japan, said in a note that the dollar will likely follow a pattern of “buy the rumor, sell the news,” against the yen.

Analysts at J.P. Morgan noted that when the BOJ decided to stand pat in March and June, the dollar fell 0.8% and 1.7%, respectively, against the yen. Most traders had expected the central bank to stand pat on both those occasions.

J.P. Morgan said the monetary action alone may not be enough to pull down the yen, particularly as Japan’s trade surplus is starting to widen. Moreover, a mere conventional easing won’t deliver any kind of positive surprise, it said.

Overall, investors are expected to largely sit on the sidelines before the Federal Open Market Committee meeting on July 26-27 and the BOJ’s policy setting meeting on July 28-29.

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Upcoming Economic Events that you should be monitoring:

Wednesday, July 27, 2016

Government Bond Auctions

Date/Time Country Type

Jul 25 11:30 Germany Eur 1.5bn Jul 2017 Bubill

Jul 25 17:20 Italy Announces details of bond auction

Jul 26 11:10 Italy Holds zero-coupon/BTP€i auction

Jul 27 11:30 Germany Eur 1bn 2.5% Aug 2046 Bund

Jul 28 11:10 Italy Holds bond auction